6 ms·

You are almost exactly describing seed funding, something I assume a lot of startups still get.

pg_is_a_butt 7y ago
You are almost exactly wrong about assuming a loan is the same as funding.
asdfasgasdgasdg 7y ago
Hrm. Seed funding gives you a piece of the action, while debt gives you the right to repayment under defined terms. They are pretty distinct economically, to the point that they fall into entirely different asset classes. They are approximately the same thing the way a banana and an apple are approximately the same thing.
wutbrodo 7y ago
Seed funding isn't a loan, it's equity. Nobody is suggesting that students give up 20% of all future income to the entity funding their education, which would roughly correspond to seed funding. That being said, there are some efforts towards equity-financing humans that are in their infancy.
- asdfasgasdgasdg 7y ago
  > Nobody is suggesting Actually, people are. Income based repayment of student loan debt is already one such mechanism. But there are also universities that are piloting post-payment of college tuition via income sharing agreements.
  - wutbrodo 7y ago
    Yes, I mention that in the last sentence of my extremely short comment. But my point stands: none of these plans come anywhere near seed funding's 15-20% of ownership, or the rough equivalent for "equity financing" humans: the rights to 15-20% of labor income in perpetuity.
    - asdfasgasdgasdg 7y ago
      Hah. I misread your last sentence as "equity financing humans in their infancy" as in from birth. That sounded pretty batty to me, which makes sense now I see that's not what you said. My bad.
      - wutbrodo 7y ago
        Haha fair enough, that was pretty ambiguously phrased.
- henrikschroder 7y ago
  > Seed funding isn't a loan, it's equity. Yes, hence the "almost". GP said that startups aren't given unsecured loans of $250k, and therefore it would be madness to give unsecured loans of that magnitude to individuals, so they can invest in a college education for themselves. ...except startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults. So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity. (And therefore GPs argument was wrong.)
  - wutbrodo 7y ago
    > Yes, hence the "almost". You can't put "almost" on a false statement and make it true. Equity isn't "almost" a loan by any stretch of the imagination, just as going to a movie isn't "almost" "making an unsecured loan to a movie theater" (if you don't enjoy the movie, you still lose your money). > startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults. This is stretching the meaning of debt beyond all recognition (and accuracy). The ownership that comes with seed funding doesn't just involve giving them money like debt does. First off, you're entitled to a _proportion_ to their value/revenue in perpetuity, as opposed to a fixed principal+interest as with debt. Secondly, part-ownership of a company gives you rights to the company you own beyond a revenue stream: which is why seed funders have partial control over the companies that they partially own (eg sitting on boards). > So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity. As I said in my comment, equity financing for humans is in its infancy, and I've been in support of it for a long time. The comparison to seed funding, however, is ludicrous, since (as I said), rights in perpetuity to income streams are not on the table, and neither is the ability to (partially) make career decisions for the recipient of the funds. > (And therefore GPs argument was wrong.) Nope. (see above)
- t0mas88 7y ago
  That's actually how it works in Europe. Universities are government paid, the student pays something below $ 2000 per year. But tax rates here are higher, so it is indeed roughly "in exchange for 20% of all future income"
- thaumasiotes 7y ago
  > That being said, there are some efforts towards equity-financing humans that are in their infancy. I find this pretty funny, because equity investments in humans go back thousands of years under the traditional name "slavery". (Edit: expanding on the point a bit, it is true that legally a slave's owner almost always owns 100% of the equity. However, this is so suboptimal for skilled labor that skilled slaves held equity in themselves, in the form of a "right" (agreement with their owner, though the rate could be set by custom rather than negotiated) to keep a percentage of their earnings. This equity was a gift from the owner, but it boosted his total earnings.)
  - bzbarsky 7y ago
    I see people say this a lot, but the details of the equity investment really do matter. For example, an equity investment that gives the investor rights to 10% of the student's income for 20 years, capped at $100,000 total, is not at all the same thing as rights to 100% of income in perpetuity (which would be closer to "slavery" as commonly understood). Note that student loans that are large enough to not be effectively payable are a lot closer to the latter than to the former. "Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing. (There are also income-dependent loans, including with expiration dates; in practice those can be hard to tell apart from equity financing with a finite time horizon and a payout cap. The UK has been funding college via such loans along these lines for close to a decade now, I believe.) Anyway, the most important question here from my point of view is how to properly align incentives. With equity financing, _if_ the student is interested in having a good income it is very much in the financer's interest to help that along (via mentorship, access to professional networks, etc), and incentives align well. If the financer is the university itself, that also provides incentives to produce graduates who can get a reasonable job. Of course if the student's goal is _not_ a "good income" we end up with incentive misalignment; similar if we want a university education to provide more than preparation for productive employment. (This last is already a problem in practice if universities get rated on how their students do in the workplace, by the way.) So I won't claim that equity financing is the right thing in all cases, but there are definitely situations where it would be a lot better than what we have now, and I think people should have the choice of financing their education this way if they want to.
- jacquesm 7y ago
  Actually, seed funding more often than not is structured as convertible loans, which are, first and foremost loans and maybe will turn into equity.
zaroth 7y ago
Yes, some startups can get seed funding. If you have the right vision, product, market, team, and strategy. Assuming you know or can get introduced to the right people with the necessary capital, that you’re willing (in most cases) to give those people some degree of control and direction over your company, that you are willing to give them preferred equity in your company which will be paid first (and before you) in an exit, and a host of other technical and legal rights. Assuming all that is true a startup can take money from investors, under a strict regulatory framework, such money which must be spent properly for the benefit of the company subject to oversight by the SEC, among others. In short, the ability of startups to raise money is highly regulated and highly specialized work. It’s a very different thing indeed from the essentially guaranteed issue funding which is available in the form of student loans. But all that aside, the central point is just this. If a bank is making an underwriting decision, then the bank is setting the interest rate and taking the risk. If the loan fails to pay back, well that’s why the bank diversifies. In the case of a federal student loan, there is no underwriting. There is no sliding scale interest rate - or if there is one it’s more likely to include subsidies for higher risk borrowers than an actual risk adjusted rate. In return for this, it becomes a sort of super-lien which can’t be discharged. This makes sense from a theoretical perspective and even from a policy perspective as long as a college education provides a strong ROI on average. The system breaks down when the ROI from attempting to get a degree is a wide distribution which includes a fat tail of people who see zero return on the most sizable investment they ever made or possibly will make. IMO the solution is 1) that the repayment should always be income based, and 2) the school should have to refund a significant portion of the loan IF the tax returns of the student over the next 10 years don’t support the repayment of the loan. 3) the student pays for 15 years post-graduation maximum.
- wvenable 7y ago
  Students used to be able to pay for a year of tuition from a summer job -- the costs of schooling has risen directly in proportion to the availability and size of student loans. The fact that student loans are not subject to same market forces as other loans has created this ridiculous situation.
notSupplied 7y ago
A seed investment has the dim hope of "10-100Xing", a loan at best gets repaid with interest.

You are almost exactly wrong about assuming a loan is the same as funding.

Hrm. Seed funding gives you a piece of the action, while debt gives you the right to repayment under defined terms. They are pretty distinct economically, to the point that they fall into entirely different asset classes. They are approximately the same thing the way a banana and an apple are approximately the same thing.

wutbrodo 7y ago

Seed funding isn't a loan, it's equity. Nobody is suggesting that students give up 20% of all future income to the entity funding their education, which would roughly correspond to seed funding. That being said, there are some efforts towards equity-financing humans that are in their infancy.

asdfasgasdgasdg 7y ago
> Nobody is suggesting Actually, people are. Income based repayment of student loan debt is already one such mechanism. But there are also universities that are piloting post-payment of college tuition via income sharing agreements.
- wutbrodo 7y ago
  Yes, I mention that in the last sentence of my extremely short comment. But my point stands: none of these plans come anywhere near seed funding's 15-20% of ownership, or the rough equivalent for "equity financing" humans: the rights to 15-20% of labor income in perpetuity.
  - asdfasgasdgasdg 7y ago
    Hah. I misread your last sentence as "equity financing humans in their infancy" as in from birth. That sounded pretty batty to me, which makes sense now I see that's not what you said. My bad.
    - wutbrodo 7y ago
      Haha fair enough, that was pretty ambiguously phrased.
henrikschroder 7y ago
> Seed funding isn't a loan, it's equity. Yes, hence the "almost". GP said that startups aren't given unsecured loans of $250k, and therefore it would be madness to give unsecured loans of that magnitude to individuals, so they can invest in a college education for themselves. ...except startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults. So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity. (And therefore GPs argument was wrong.)
- wutbrodo 7y ago
  > Yes, hence the "almost". You can't put "almost" on a false statement and make it true. Equity isn't "almost" a loan by any stretch of the imagination, just as going to a movie isn't "almost" "making an unsecured loan to a movie theater" (if you don't enjoy the movie, you still lose your money). > startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults. This is stretching the meaning of debt beyond all recognition (and accuracy). The ownership that comes with seed funding doesn't just involve giving them money like debt does. First off, you're entitled to a _proportion_ to their value/revenue in perpetuity, as opposed to a fixed principal+interest as with debt. Secondly, part-ownership of a company gives you rights to the company you own beyond a revenue stream: which is why seed funders have partial control over the companies that they partially own (eg sitting on boards). > So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity. As I said in my comment, equity financing for humans is in its infancy, and I've been in support of it for a long time. The comparison to seed funding, however, is ludicrous, since (as I said), rights in perpetuity to income streams are not on the table, and neither is the ability to (partially) make career decisions for the recipient of the funds. > (And therefore GPs argument was wrong.) Nope. (see above)
t0mas88 7y ago
That's actually how it works in Europe. Universities are government paid, the student pays something below $ 2000 per year. But tax rates here are higher, so it is indeed roughly "in exchange for 20% of all future income"
thaumasiotes 7y ago
> That being said, there are some efforts towards equity-financing humans that are in their infancy. I find this pretty funny, because equity investments in humans go back thousands of years under the traditional name "slavery". (Edit: expanding on the point a bit, it is true that legally a slave's owner almost always owns 100% of the equity. However, this is so suboptimal for skilled labor that skilled slaves held equity in themselves, in the form of a "right" (agreement with their owner, though the rate could be set by custom rather than negotiated) to keep a percentage of their earnings. This equity was a gift from the owner, but it boosted his total earnings.)
- bzbarsky 7y ago
  I see people say this a lot, but the details of the equity investment really do matter. For example, an equity investment that gives the investor rights to 10% of the student's income for 20 years, capped at $100,000 total, is not at all the same thing as rights to 100% of income in perpetuity (which would be closer to "slavery" as commonly understood). Note that student loans that are large enough to not be effectively payable are a lot closer to the latter than to the former. "Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing. (There are also income-dependent loans, including with expiration dates; in practice those can be hard to tell apart from equity financing with a finite time horizon and a payout cap. The UK has been funding college via such loans along these lines for close to a decade now, I believe.) Anyway, the most important question here from my point of view is how to properly align incentives. With equity financing, _if_ the student is interested in having a good income it is very much in the financer's interest to help that along (via mentorship, access to professional networks, etc), and incentives align well. If the financer is the university itself, that also provides incentives to produce graduates who can get a reasonable job. Of course if the student's goal is _not_ a "good income" we end up with incentive misalignment; similar if we want a university education to provide more than preparation for productive employment. (This last is already a problem in practice if universities get rated on how their students do in the workplace, by the way.) So I won't claim that equity financing is the right thing in all cases, but there are definitely situations where it would be a lot better than what we have now, and I think people should have the choice of financing their education this way if they want to.
jacquesm 7y ago
Actually, seed funding more often than not is structured as convertible loans, which are, first and foremost loans and maybe will turn into equity.

zaroth 7y ago

Yes, some startups can get seed funding. If you have the right vision, product, market, team, and strategy. Assuming you know or can get introduced to the right people with the necessary capital, that you’re willing (in most cases) to give those people some degree of control and direction over your company, that you are willing to give them preferred equity in your company which will be paid first (and before you) in an exit, and a host of other technical and legal rights. Assuming all that is true a startup can take money from investors, under a strict regulatory framework, such money which must be spent properly for the benefit of the company subject to oversight by the SEC, among others. In short, the ability of startups to raise money is highly regulated and highly specialized work. It’s a very different thing indeed from the essentially guaranteed issue funding which is available in the form of student loans. But all that aside, the central point is just this. If a bank is making an underwriting decision, then the bank is setting the interest rate and taking the risk. If the loan fails to pay back, well that’s why the bank diversifies. In the case of a federal student loan, there is no underwriting. There is no sliding scale interest rate - or if there is one it’s more likely to include subsidies for higher risk borrowers than an actual risk adjusted rate. In return for this, it becomes a sort of super-lien which can’t be discharged. This makes sense from a theoretical perspective and even from a policy perspective as long as a college education provides a strong ROI on average. The system breaks down when the ROI from attempting to get a degree is a wide distribution which includes a fat tail of people who see zero return on the most sizable investment they ever made or possibly will make. IMO the solution is 1) that the repayment should always be income based, and 2) the school should have to refund a significant portion of the loan IF the tax returns of the student over the next 10 years don’t support the repayment of the loan. 3) the student pays for 15 years post-graduation maximum.

wvenable 7y ago
Students used to be able to pay for a year of tuition from a summer job -- the costs of schooling has risen directly in proportion to the availability and size of student loans. The fact that student loans are not subject to same market forces as other loans has created this ridiculous situation.

notSupplied 7y ago

A seed investment has the dim hope of "10-100Xing", a loan at best gets repaid with interest.